Methanol brews mid-term gains

Benefiting from the recent "Fourteenth Five-Year Plan" energy consumption dual control mission targets issued by many provinces in my country, the new methanol production capacity will face compression in the future. Boosted by positive expectations on the supply side, the methanol 2105 contract began a round of unilateral rise in late February, and the futures price steadily rose from 2360 CNY/ton to 2682 CNY/ton, a new high since February 2019. In the past week, although the methanol 2105 contract futures price has been adjusted from a high level to 2,450 CNY/ton, the methanol price will start a mid-term increase in the context of the limited expansion of domestic methanol production capacity and the approaching annual spring inspection.

"Methanol Supply Side Reform 2.0" released

In order to achieve China’s goal of achieving “carbon peak” by 2030 and “carbon neutral” by 2060, Inner Mongolia, Shanxi and Shandong have recently introduced energy consumption dual control measures, not only restricting the newly added energy-intensive coal production The methanol project, and special monitoring of the energy consumption of the existing coke oven gas-to-methanol enterprises, is intended to require the above-mentioned methanol enterprises to reduce their load and energy consumption.

It is worth noting that Inner Mongolia, Shanxi and Shandong are all provinces with large methanol inventory and production capacity in my country. Among them, Inner Mongolia ranks first, Shanxi and Shandong rank third and fourth respectively. The implementation of the dual control measures for energy consumption in the methanol industry in the above three provinces not only means that methanol companies based on coal and coke oven gas are facing strong policy constraints on new capacity expansion and stagnation, but also that stock devices will also be suppressed. The utilization rate has the effect of shifting to a long-term reduction on the supply side, which is comparable to the upgraded version of the supply-side reform in 2016.

Strong policy constraints open up room for methanol to rise

In 2016, my country launched supply-side reforms in the coal industry. In my country's methanol industry, coal-based process production accounts for 70% of the total, and there are countless small and medium-sized coal companies and their affiliated methanol projects in Northwest China and North China. Implement reform measures such as optimization, upgrading, reorganization, and mergers for small and medium-sized coal mines and coal chemical projects that are outdated and not up to environmental protection standards. In the context of the implementation of supply-side reforms in the coal industry, the cost of coal-to-methanol has increased by 500-600 CNY/ton annually. As a result, long-term funds were attracted to pour into the methanol market, continuously pushing up methanol futures prices, and the upward trend continued until mid-February 2017. According to statistics, from September 2016 to mid-February 2017, the main methanol contract rose steadily from 1950 CNY/ton to a maximum of 3128 CNY/ton, a cumulative increase of 60.41%.

Compared with the dual energy consumption control policy implemented in many provinces in my country in 2021-"Methanol Supply Side Reform 2.0", since the release of the dual energy consumption control policy, the cumulative increase in the main contract price of methanol has only been 6.52%. If the effect of the dual energy consumption control policy is similar to the dividend brought by the supply-side reform in 2016, it means that the policy's strong restrictive effect will open up room for future methanol prices.

Domestic methanol industry will usher in spring maintenance

Every year from March to May is the spring maintenance period for the domestic methanol industry. Although the spring maintenance cycle was longer under the influence of the epidemic last year, the dual control of energy consumption since the beginning of March this year has made some companies enter the ranks of reducing the burden ahead of time. According to statistics, from March to May, the domestic production capacity of methanol plants involved in maintenance was about 12.46 million tons, accounting for about 12.7% of my country's total production capacity. With the arrival of the spring maintenance of domestic methanol companies, it is expected that the contraction of the methanol supply side will be strengthened in the short term, thus giving the methanol price impetus.

At the same time, benefiting from the fact that some overseas methanol plants are still under maintenance and external supply pressure is not great, the recent methanol arrivals to ports are still low, and methanol stocks in port areas continue to deplete. According to statistics, as of the week of March 12, methanol inventory in my country's coastal areas (Jiangsu, Zhejiang and South China) was 937,000 tons, a decrease of 12,000 tons from the previous week's 938,200 tons, a decrease of 0.13%.

On the whole, as my country implements the "Methanol Supply Side Reform 2.0", the new pressure on the domestic methanol supply side will be significantly reduced, and an expectation of tighter supply will be created. At the same time, the methanol plant is about to be overhauled in the spring, and expectations of short-term supply shortage have also been strengthened. Overlapping overseas supply pressure is not large, and methanol futures prices may rise in the medium-term.